Can you imagine if Warren Buffett was your investment adviser? Wow, that would be awesome wouldn’t it? Getting advice from the most successful investor in the world would be incredible, huh?
A few years ago, myself and bunch of other real estate investors gathered from around the country to study the man, the legend, the Oracle of Omaha, Warren Buffett himself. We studied in-depth a book called “Buffettology”, a book that embodies Warren’s investing principles and techniques throughout his decades of making billions of dollars for himself and his shareholders. And our goal was to take from that book how Warren approached investments, how he bought them, how he made money from them, and lastly, how we could take what we learned and apply it to our own real estate investing lives. There are 4 what I call, Buffett Nuggets. I will discuss 2 this week and the other 2 next week.
I’ll take each one and show you how to use them in your apartment investing to be just as successful as Warren. Guaranteed!
Buffett Nugget #1: Warren wants and gets predictability of CASH FLOW!
When Warren invests in any company, he demands that it has reliable, consistent, and reproducible cash flow. Cash is KING to him! He does this by extensively researching the company’s financial history and where the company sells its products or services. Once his research is complete, he can more or less tell if the company is reliably liquid or not.
As an apartment investor, you should do no different. After all, you are in the income-producing business and therefore, you should confirm the property’s income, right? You do this by getting a hold of the seller’s three years of the property’s financial records, a current-month rent roll, a six-month report of income collection, a rent delinquency report for all the tenants, and last but not least, the seller’s income tax returns for the property’s last three years. The reason you want to get the seller’s tax returns is to compare the tax return’s reported income amount to the amount given to you on the seller’s “computer generated” financial records. You see where I’m going here? Which do you believe most – a computer generated report or an amount reported on an income tax return? Easy answer…
Buffett Nugget #2: Warren demands CONTROL of the company (6 controls he always gets!)
The reason why Warren is considered to be the best investor in the world is because he’s a control freak where it matters most. Do you think you could be successful if you controlled the income, the expenses, the asset itself, the debt, the management, and you had insurance just in case something went horribly wrong? I bet you could! Well, that’s exactly what Warren sets out to do when he makes a substantial investment into a company. They either let him do that or he walks. It’s that simple.
As apartment investors, if you get the right education and sound advice, you should construct your deals the same way…nothing less. Please don’t settle for less! If done right and without being too over-enthusiastic, you too, should these 6 investor controls in your next apartment deal – income, expense, asset, debt, management, and insurance. If you don’t, call me, stop your deal, or call someone who’s an expert in apartments. Anything less and you’re putting yourself at above normal risk.
I could go on forever, but then a blog wouldn’t be a blog wouldn’t it? So, I’ll stop here. Next week, I’ll share with you the 2 remaining Warren Buffett Nuggets I learned and how to apply them to your apartment investing.